The Commissioner of Taxation of Australia has proposed changes to the requirements for issuing a Recipient Created Tax Invoice (RCTI). These changes are outlined in Draft Legislative Instrument LI 2022/D15 (The Draft), which is now available for public consultation.
Here's what you need to know about The Draft and how it could affect your GST invoice treatment.
The Purpose of 'The Draft'
Currently, there are 51 separate instruments in place that specify the recipients, requirements and circumstances for issuing RCTIs. With this single consolidated legislative Instrument (LI 2022/D15), Australian tax authorities aim to simplify the process. The simplification measure will enable recipients to better self-assess whether they are eligible to issue RCTIs (and which requirements to adhere to). The Draft Instrument includes the following:
- Relevant definitions
- A list of taxpayers who are eligible to issue an RCTI
- Detailed requirements for recipients of taxable supplies who want to issue an RCTI
- Detailed requirements for a written agreement with the supplier, including agreements embedded in an RCTI
- A list of instruments that will be repealed
Who is eligible to issue a recipient-created tax invoice?
For a business to claim input tax credits, it must hold a valid tax invoice (or valid RCTI). Therefore, ensuring compliance is critical to meet GST requirements. In most cases, the supplier of a taxable supply (e.g. the service provider) will issue a tax invoice to the recipient (e.g. the customer).
However, the Australian Tax Commissioner has the authority to specify a class of tax invoices that can be issued by the recipient of a taxable supply instead of the supplier. This is useful in situations where the value of the supply is determined by the recipient instead of the supplier, such as when an analysis of the goods must be done before their value can be determined.
The Draft is expected to impact GSTR 2000/10 to simplify the process and gain further clarity on who is eligible to issue recipient-created tax invoices. In addition, the GSTR sets out the regulatory rules that allow the use of RCTIs and specific guidelines where there is no need to apply or notify the Commissioner.
The Draft states that recipients may issue RCTIs if they're one of the following;
- A government-related entity
- A large business entity
- A business entity
Within these three eligibility criteria, there are additional requirements. The requirements depend on which category the recipient falls into. If a recipient happens to fall into more than one category, they must meet the requirements of at least one relevant category.
GST registration and verification requirements
Section 7 of the Draft discusses the relevant requirements that must be satisfied by a recipient of a taxable supply. The majority of this section primarily highlights and reinforces current administrative processes and requirements. However, one critical new condition should be on the radar of any eligible recipient. The Draft proposes that a recipient must be able to verify that their supplier is registered for GST. This is not a once-off verification and is required with each issue of an RCTI.
This task is a significant change to the process and could bring about significant additional admin. If this change is implemented and confirmed, recipients must ensure that the correct procedures are in place to prove and verify their suppliers' GST registration.
Navigate GST and RCTI with VAT IT
The Draft is expected to take effect after comments from the public and the final instrument is registered. Currently, this is anticipated to be in early 2023. If you have any concerns about how the proposed draft will impact your invoicing system, get in touch with our VAT IT experts here and rest assured that your invoices comply with the latest legislative updates.
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